Retail Outlook Softens For 2006

The National Retail Federation blames fuel costs and a housing slowdown for its forecast of a modest 4.7% growth in sales.

January 17, 2006|By Mark Chediak, Sentinel Staff Writer

NEW YORK -- Rising fuel costs and a cooling housing market will likely prompt Americans to spend a little less at the store this year, an industry trade group said Monday.

The National Retail Federation, in New York for its annual convention, said it expects store sales of clothing, home furnishings, books, electronics and other general merchandise to increase by a modest 4.7 percent in 2006, down from 6.1 percent in 2005.

Rosalind Wells, chief economist for the federation, described the drop as "nothing dire" but simply a slowing of growth.

"The single most important source of consumer spending power in recent years has been the booming housing market, and this market is likely to cool off," Wells said.

Many consumers have been funding their shopping with cash from home-equity loans or profit from the sale of homes that appreciated during the five-year expansion in the housing market. Additionally, energy costs are pinching consumers' wallets.

In Florida, though, the retail picture could look different. Historically, stores in Florida have done better than the national average, thanks to the state's increasing population, influx of tourists and robust economy.

Barton Weitz, executive director of the Center for Retailing at the University of Florida, said he sees stores in the state and the Orlando area doing very well again this year.

"We're still a growing market, and new retailers are still coming in," Weitz said, citing the opening of Kohl's department stores toward the end of 2005 and the expansion of grocers such as Whole Foods Market as examples.

Terry Lundgren, chief executive of Federated Department Stores, was upbeat about his company's performance in Florida. The Macy's brand has "just been terrific," he said. Federated, which also owns Bloomingdale's, converted Burdines stores to Macy's last year.

The retail federation's forecast comes on the heels of a government report Friday that showed retail sales for December up just 0.7 percent from November on a seasonally adjusted basis, hinting that a slowdown in spending has already started.

Economists closely watch consumer spending because it is the engine that drives the U.S. economy.

Despite its modest forecast, the federation said certain segments of the industry are poised for solid sales gains this year, such as retailers that sell food and beverages, health and personal-care items, clothing and accessories -- including jewelry and shoes. The survey also pointed to electronics as another area of strength.